A claim for damages for a negligent property valuation requires both a negligent valuation and evidence that it caused the loss claimed.
The High Court considered such a claim in Hope Capital Ltd v Alexander Reece Thomson LLP [2023] EWHC 2389 (KB).
The case concerned a valuation of Cedar House, a Grade II* listed property on the edge of Cobham in Surrey. In a report of February 2018, the defendant valued the property at £4m as security for a bridging loan of £2.2m by the claimant to the long leaseholder of the property. The leaseholder defaulted on the loan and receivers took possession of Cedar House in November 2018. Shortly afterwards, the freeholder served a section 146 notice on the leaseholder concerning irresponsible renovations. The property was sold in October 2020 for £1.4m.
Hope alleged that the ART valuation was negligent: if it had reflected the true value of the property then no transaction would have taken place. Hope accepted that its loss was capped by reference to the difference in value between the £4m and a non-negligent valuation (based on a restricted sale period of 180 days) of £1.95m: see South Australia Asset Management Corp v York Montague Ltd [1997] AC 191. Hope sought damages of £2.05m and interest. ART accepted it was in breach of duty but denied causation and loss, alleging contributory negligence.
The court decided that the open market value of the property at the valuation date was £2.75m (the 180-day valuation was £2.475m, a 10% reduction) with a tolerance band of 15% reflecting the uniqueness of the property. Consequently, ARTs valuation was incompetent.
Hope relied upon the valuation to advance the loan and would not have made it otherwise. However, Hope was unable to establish any entitlement to contractual interest or loss of profits on the basis that the funds lent would have been used for another transaction. So, its maximum recoverable loss was the transaction loss of £875,401.40 (capital advanced, plus costs of extraction, less sale proceeds/funds received) together with statutory interest, subject to any contributory negligence.
There was a lack of movement in the market between February 2018 and March 2019. The loss of value in the security – between £2.75m (or the 180-day valuation of £2.475m) and the sale price of £1.4m – was caused by a combination of service of the section 146 notice, delay in resolving it and the effects of Covid. The capital loaned was lower than either valuation so but for these factors the claimants would not have suffered any loss of capital. Consequently, Hope’s actionable loss was nil.
Louise Clark is a property law consultant and mediator
